Archive for the ‘Marketing’ Category

The more a brand knows about your interests, the better it can be at showing you advertising relevant enough to grab your attention. Additionally, the more a brand knows about who you are friends with, the better it can be at showing you advertising relevant enough to grab your attention. Your social graph is very telling of your potential purchasing decisions, for birds of a feather flock together. These concepts were the original value propositions of social networks to advertisers. We all know how that has panned out in reality.

Are you really that close with the hundreds of people you are connected to via Facebook, LinkedIn or twitter? No, you’re not. But you probably are quite close to most of the people you speak with or SMS with on your cell phone. The reason for this is that your cell phone is more personal; and it requires more of a commitment to connect with someone through a phone call.

When I first started using Twitter I thought to myself that these guys really nailed the capturing of my personal data (interests, preferences, intimate social graph, etc). I thought the sole use case of the service was to constantly broadcast to my friends what I am up to. Brilliant. But in actuality I use twitter to send a variety of messages to a mix of social and professional contacts, and only occassionally does that message actually have anything to do with me personally (aka what I’m doing). The early adopters of twitter probably fall in this category. Yet the masses will use the platform to speak about themselves most of the time; as such the personal data capture may still happen, but learning a user’s true social graph will not.

Skydeck came so close. I’ve been waiting for this company to really take off and ultimately become a marketing services company. So far it hasn’t happened and because of Google Voice it probably never will.

If Google Voice can get enough people to use the service, it would seize the holy grail of information that advertisers want. It will know your real-world relationships and the strength of those relationships. It will know who is a business contact and who is a personal contact. Through its transcription service, Google will know the content of messages people leave for you and of any calls you ask it to record. It will know the content of all your text messages. That is all powerful data, especially when combined with data harvested from Google’s other products such as Gmail, Talk and Latitude. Google Voice will expose your real social graph. And because it’s on your cell phone, dozens of new data points are harvested each day. Last, but not least, once hooked you will feasibly use the service forever because your Google Voice number is yours to keep and Google isn’t disappearing anytime soon.

I really can’t wait to try out the service. I hope you feel inclined to leave a comment regardless of whether you agree with me or not.

Having control of distribution is one of the most powerful cards a business can hold in its proverbial hand of poker. It allows you to greatly influence the rules of the game and determine how draconian or democratic they will be. Either way, this power pays off in spades. According to quantcast, Comcast.com gets over 14 million unique visitors per month to its site (Compete puts this number at a little over 6 million). Splitting the difference, we can estimate that 10 million people visit that homepage at least once per month. 10 million??? Are you kidding me? And why do 10 million people visit that useless site? Because it is the default start page for Comcast’s 14.9 million internet subscribers. The only way this stops being a Comcast subscriber’s browser homepage is if he or she actively changes it, which clearly is not a frequent occurrence. So let’s say that of the 10 million montly uniques, 8 million of those are internet subscribers who probably open their browsers 20 times per month, and the other 2 million uniques just land on the site once in that month. That’s 162 million visits to comcast.com each month. At a $10 CPM, with 2 ads on the page, that’s $3.2 million per month and almost $40 million per year. Owning the channel sure has its privileges!

Liquor distributors control the distribution of alcohol in most states and thus benefit from huge margins.

Twitter owns the channel and thus can control who gets access to the real-time conversation and how often.

Facebook owns its respective channel. Though they have taken quite a bit of heat for trying to control users’ data, it is hard to deny that Facebook has the ultimate say up until users revolt by closing accounts. Microsoft and Google both acknowledged the power of owning this channel, but Microsoft won with an expensive ownership stake in the social network.

Hulu owns the channel. Yes, content providers strong-armed the company and demanded they discontinue streaming videos through Boxee, but very soon we will see that Hulu will win the battle. It’s just too obvious. Hulu can ultimately do whatever it wants because it has incredible distribution and the content providers will have to bend to the company’s wishes. It’s just that right now young Hulu is still figuring out how to play in the tug-of-war between supplier and consumer. Boxee will eventually own the computer-to-TV channel.

Apple owns music distribution through its iTunes application, which locks consumers into using an iPod. The company makes no money on the music and doesn’t really care whether you buy music through the iTunes store or other sources, but they make plenty of money on the player (i.e. counter to many other business models, they make most of the money from the razor and not the blades).

Newspapers used to own the channel. Their prowess depended on it. Once they lost control of distribution, they became rudderless ships at sea.

Owning the channel is why Amazon created the Kindle.

Owning a channel is not synonymous with being a monopoly, though the associated power is similar. Owning a channel is about providing access. OpenTable owns the channel of access to diners. Sysco owns the channel of access to restaurants. ZocDoc will one day own the channel for doctor appointments. Outside.in will one day own the channel for local news. If you find a potential channel you can control, get in there fast. And if you can’t own the channel, at least try to move upstream. Otherwise you have to hope that you won’t get crushed when dancing with the elephants.

I love twitter. It enables a public conversation via its low barriers to participation. While traditional blogging is asynchronous communication, twitter is intended to foster banter and new ideas. Participants deliberately choose to expose their conversations for all to see, opting not to communicate via other private mediums such as phone, email, sms or twitter direct message. In doing so they are indirectly keeping the door open for other people to participate in the conversation.

However, there is a price associated with using twitter. When one has achieved a level of twitter stardom, it becomes almost impossible to engage with all the people who try to converse with them. The law of unintended consequences then rears its ugly head when those ignored people feel snubbed by the “cool kids”. I beg you to read Clay Shirky’s thoughtful explanation of this phenomenon of power laws and inequality he wrote about in a post back in 2003.

This popularity brings with it a high degree of influence. The correlation between one’s number of twitter followers and one’s authority was heavily discussed last month, and I will not beat a dead horse here. Jeff Jarvis summed it up well when he asserted that a plethora of twitter followers is not indicative of authority, but rather a proxy for influence. These days, when one’s path from zero to hero can be vastly shortened by a shout-out from an already-respected individual, I have even greater respect for the people who achieved stardom without the help of twitter. Enter Seth Godin.

Seth needs no introduction; but for those who are not familiar with him, he is an accomplished author, successful entrepreneur, and highly regarded as an expert in marketing. He is one of my heroes in the business world. The strength of his influence can be seen in the following example: on January 14th Seth wrote a post on his blog asking people to vote for his friend’s entry in a contest. His friend’s name is Becky. On the date of his post, Becky was 100 votes out of first place. When the contest ended the next day, Becky took first place with 72% of the 5,000 votes!

Even with all the attention he receives, Seth keeps in touch with his readers and fans. I have emailed Seth three different times [Feb 25, 2005 / May 20, 2005 / Dec 9, 2008] and each time he has replied promptly. They were very succinct replies, but replies nonetheless. You may speculate that he has people responding to emails on his behalf. But I really don’t think so. That would run completely in the face of authenticity – a virtue he highly values.

Seth Godin is not on twitter. As such maybe he receives less requests for his attention than the twitter stars who are constantly pinged by their followers. Who knows. But I do know that he is a stud who takes the time to respond to his fans. In doing so he strengthens the bond with his “followers” and does not jeopardize alienating them.

I believe the net effect of being a powerful member of the Twittershpere is positive. This post is intended to show that unfortunately it does possess its drawbacks. In an ideal world, people would have the capacity to behave more like Seth Godin. They would be able to engage with all of the people who admire their opinions.

Fred Wilson’s post this morning on display advertising got me thinking about its offline analog: billboard advertising. My retail business in Miami is located on a property that also hosts a billboard. CBS Outdoor is the company that manages all aspects of the billboard (selling ads, maintenance, legal, etc) and they pay my landlord 30% of all ad revenue generated from that billboard. In online terms, my landlord is the publisher, the retail center is the website, the billboard is the ad unit and CBS Outdoor is the ad network. Ad networks for billboards operate the same model as online ad networks: they aggregate inventory from many sources, sell that inventory to advertisers, and split the revenue with the respective landowners.

Yet there are tremendous differences between the economics of billboard advertising and online advertising. The offline world has limited real estate and we cannot produce anymore land. Furthermore, outdoor advertising in the U.S. is subject to strong government regulation at the federal, state and local levels, imposing restrictions and limitations on the construction of new billboard units. Hence supply is tightly controlled. Also there are only a handful of companies that do billboard advertising, notably Clear Channel Outdoor, CBS Outdoor and Lamar (these are the “ad networks”). It is for these reasons, despite being a mature industry, that revenue and profit grew consistently up until the recession of 2008. For example, Clear Channel Outdoor’s U.S. business has grown at 11% per year for several years, with EBITDA margins of 45%.

In contrast, the online world has perpetually growing real estate and ad inventory. Millions of web pages are created every day, and most of them are capable of displaying advertising without abandon. That is the terrestrial equivalent of us being able to create a new country every day and sprinkle it with as many billboards as we want. If I own the land around one of these billboards and I plan on living off the advertising on that billboard, I better do something really awesome to convince people to come see me. This is the economy of attention. It is no surprise that with such an excessive amount of inventory there are hundreds of ad networks, all competing for the same ad dollars and driving down CPMs. In reality very few companies can survive from online advertising alone. Almost all online ad dollars go to Google and Yahoo.

So yes, display ads will get dirt cheap and will be sold as remnant inventory. As Fred notes, people will deploy sophisticated targeting tools for these display ads to the point that they are as efficient and democratic as search. However, what will transpire after that is an increase in display CPMs– a rebound of sorts. Why? That is exactly what happened when Google introduced AdWords. At first it was dirt cheap to advertise through AdWords. But as more and more advertisers came onboard to use the simple text ad-creating tool, and as demand for specific keywords increased, so did pricing. That too will happen when creating display ads becomes stupid simple.

I wonder what the internet would look like if ad inventory was controlled the same way billboards are. We would certainly see more creative business models generated. We would probably witness fewer entrepreneurs see their dreams falter. Yet we would gain a lot less value from all the content and data the free internet gives us. Long live the American dream.